It´s been a good year for O and G, setting the right agenda for reforms and increased private participation in exploration, says LK Gupta, MD and CEO, Essar Oil, in a conversation with Shashidhar Nanjundaiah.
Will you participate in the upcoming 10th round of NELP? We have not yet taken a call. If we find value, we will consider it. We are currently more focused on completing our Ranigunj CBM fields and running our Vadinar refining plant optimally. This is a period where we are preparing for future growth, but this will take about 18-24 months when we expect our leverages to be factored.
Given the government´s revision of pricing in gas and deregulation of its transportation, are you planning to diversify more into gas now? We are already in the gas development stage ´we´re producing only small quantities and should be producing large quantities. We also have other fields we´re exploring. The gas price increase has been a motivator for us to do so.
The government has also announced a shale gas policy, and PSUs will be exploring it soon. We await a similar policy for private players. These policies allow the country to manage our current account deficit better and come at a relevant time: 30 years hence, for example, oil may be far less relevant to the world than it is today. Gas will be a major contender for coal in the long term as a substitute. I am not sure gas will be a big challenge crude oil, and I believe there is not much to worry for the oil industry.
Will you be using more environment-friendly technology for oil extraction in the future? Technology has already been available. For example, the horizontal drilling technology saves land and the environment. We´re already using this technology at Ranigunj just one vertical drill branches out into four horizontal drills underground.
You have been seeking incentives for your Vadinar refinery. In October, you had asked the Supreme Court to direct the Gujarat government to examine the feasibility. What is your expectation? The issue is that refineries are high-volume but low-margin. Central sales tax (CST) is not reimbursed directly [by buyer]. All the refineries set up in the country in the last 15 years have been granted sales tax and other incentives. CST was either exempted or deferred for 15 to, in some case, 30 years.
Now, our project was delayed because of an environment-related case against us, and between the High Court and then the Supreme Court, has taken us four years to resolve the case. This is the reason we´ve been denied sales tax exemption, since the court has ruled that it is unclear whether the delay was caused by the government or by us, therefore denying us the benefit of the doubt.
On the other hand, in the case of the [HPCL] Rajasthan refinery, the state government is providing as much as Rs 3,700 crore per year as incentive for 15 years. Bhatinda, Paradip and Bina, all of whom were delayed by 10 years, received incentives. This compromises our competitive edge.
In some ways, Essar Oil represents a quintessentially modern energy company exploring both oil and gas, hungry for efficient fuel, vertically integrated, and global. As India´s largest (about 2,700 sq km, with their Ranigunj fields close to production) coal-bed methane (CBM) explorer, the company also has about 35,000 sq km available for exploration, with over 750,000 barrels per stream day (bpsd) of global crude-refining capacity in their Vadinar, Stanlow and Kenya units.